BB&T Corp. remained on a record profit pace for fiscal 2019 in preparing for its $29.7 billion acquisition of SunTrust Banks Inc.
BB&T reported Thursday record net income of $842 million for the second quarter.
When excluding $22 million in merger-related and cost-cutting initiative expenses, adjusted net income was a record $868 million.
“These results were driven by strong loan growth, improved revenues led by record insurance income and a strong performance in investment banking and brokerage fees and commissions, as well as continued healthy asset quality,” Kelly King, BB&T’s chairman and chief executive, said in a statement.
BB&T and SunTrust announced Feb. 7 they will merge to form the nation’s sixth largest traditional bank with $442 billion in total assets and market capitalization of $66 billion.
The deal requires shareholder and regulatory approvals and is projected to close in the fourth quarter. Simultaneous shareholder meetings will be held July 30 in Greensboro and Atlanta.
The combined bank’s headquarters will be in Charlotte, though Winston-Salem would retain the community-banking operations and Atlanta would retain SunTrust’s corporate and investment-banking operations.
The banks plan to unveil more Truist details, such as signage and logo, closer to completion of the deal.
Unlike the first three quarters of fiscal 2018, BB&T’s sixth consecutive record quarterly performance was not driven significantly by the decline in federal corporate income-tax expense from 35% to 21% on Jan. 1, 2018.
For the second quarter, BB&T’s provision for income taxes was $232 million, compared with $202 million a year ago.
Noninterest expenses were up 1.8% to $1.75 billion.
Loan income slipped 0.3% to $1.52 billion, while the provision for loan losses increased 27.4% to $172 million, due primarily to loan growth during the quarter.
The biggest factor in the quarter was fee income jumping 10.6% to $1.35 billion.
The largest fee stream, insurance, was up 17.7% to a record $566 million. BB&T’s insurance agency and brokerage network is the fifth largest in the United States and sixth largest in the world. The bank completed in July 2018 its purchase of Regions Insurance Group for an undisclosed price.
Service charges on deposits rose 1.1% to $181 million, while investment-banking and brokerage fees and commissions climbed 20.2% to $131 million.
Mortgage banking rebounded during the second quarter to increase 20.2% to $113 million after generating $63 million in the first quarter.
The increase likely reflects higher consumer demand for residential loans and increased commercial real-estate loans as mortgage rates dropped during the quarter. Some national and superregional banks have put less emphasis on mortgage lending in recent quarters, in part reflecting increased competition from online mortgage lenders.
However, BB&T said it plans to sell up to $4 billion in residential mortgage loans during the third quarter “to improve rate risk positioning” as it relates to the SunTrust acquisition.
The reduction in non-interest expenses was highlighted by a 51.3% drop in regulatory charges to $19 million. The regulatory charges decline reflected the elimination by the Trump administration of the special assessment for larger financial institutions.
Personnel expenses rose 4.3% to $1.12 billion, in large part because of salary increases awarded in early 2018.
Nonperforming assets were at $523 million on June 30 — the lowest amount since the second quarter of 2006, according to BB&T — compared with $584 million on March 31 and $624 million on June 30, 2018.
Net charge-offs were $142 million in the second quarter, compared with $147 million in the first quarter and $109 million a year ago.
The banks expect $2 billion in one-time merger charges. BB&T took $23 million in the second quarter.
CFRA Research analyst Stewart Glickman said BB&’T’s second-quarter results led him to increase his fiscal 2019 earnings guidance by 7 cents to $4.28 a share. He maintained his 12-month share-price target of $56. BB&T’s closing share price Thursday was $51.04, up $1.37.
“Although the company sees a bit of pressure on net interest margin in the third quarter, it also notes strong loan growth in the second quarter that it thinks can persist in the third quarter,”Glickman said.
BB&T projected at least two interest-rate cuts by year’s end, which could lead to a decrease in loan revenue.